Question 1

The cross elasticity between two goods has been measured at −1.2.How are the goods related? Explain.Give an example of goods for which this might be a reasonable measure of cross elasticity.

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Question 2

The Sandy Deli operates near a college campus.It has been selling 325 sandwiches a day at $1.75 each and is considering a price cut.It estimates 450 sandwiches would sell per day at $1.50 each.Calculate the marginal revenue of such a price cut and the elasticity between the two points.

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Question 3

Using the general concept of elasticity, would you expect the elasticity of demand for advertising to be positive or negative? Explain.

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Question 4

How might a court use cross elasticity in an antitrust case?

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Question 5

What is the shape of a perfectly elastic demand curve? Explain its significance for a seller.

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Question 6

How might a market research analyst use measures of elasticity-price, cross, and income-in her work? Explain.

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Question 7

Arrange the following goods from least to most elastic, explaining your ordering: gasoline, Exxon gas, Exxon gas at a particular gas station.

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Question 8

What are the main determinants of demand elasticity? Explain their importance.

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Question 9

Sun City's public bus line has been operating at a deficit.The city decides to raise the fare from 50 cents to 75 cents, anticipating enough additional revenue to cover the deficit.What assumption is the city making about price elasticity?

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Question 10

Explain what happens to the magnitude of price elasticity of demand as price increases along a straight-line demand curve.

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Question 11

Along a straight-line demand curve, why does the price elasticity of demand grow steadily smaller as we move from left to right?

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Question 12

Suppose that elasticity has been reliably measured as 1.55 and the unit price decreases from $20 to $17.50.How much will quantity demanded increase?

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Question 13

A unit-elastic demand curve never touches or crosses either of the axes.Why?

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Question 14

For each pair of goods, explain which is more elastic: toothpicks vs.cars; electricity vs.yachts; IBM computers vs.Apple computers.

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Question 15

In a past fare war, U.S.Air reduced the price of its Charlotte, North Carolina, to New York City round-trip fare from $198 to $138 to match American Airlines.U.S.Air did so reluctantly, saying it would cost the company millions of dollars in revenue.American, on the other hand, believed the fare cut would increase its revenue.What different assumptions about the underlying price elasticity of demand did each airline believe true?

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Question 16

The current price of concert t-shirts is $20 each, and the company has been selling 400 per week.If price elasticity is 2.5 and the price changes to $21, how many t-shirts will be sold per week?

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Question 17

What is an optimal decision?

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Question 18

How can one tell from cross elasticity what kind of relationship exists between any two goods?

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Question 19

What does cross elasticity of demand between goods reveal about the nature of relationship between them?

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Question 20

Why is it customary to report price elasticity of demand in absolute value terms while cross elasticities and income elasticities are reported with their sign attached?

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Quiz 6: Demand and Elasticity